RBI may stop sending its officers to boards of govt-owned banks

The Reserve Bank of India is exploring the option of not appointing its serving officers on the boards of government-owned banks and financial institutions. According to central bank sources, this is being done for two reasons: to avoid conflict of interest and bring in transparency in the functioning of the banking regulator. There is a third reason, too. There is thinking on Mint Road that if a bank is involved in any wrong doing, all board members should equally be held responsible. Such a scenario can be embarrassing for the central bank if it has its own official on the board. All government-owned banks, including the State Bank of India and the Punjab National Bank, and financial institutions such as the National Bank for Agricultural and the Rural Development (Nabard) and the National Housing Bank have RBI-nominated independent directors. For large institutions such as the SBI and Nabard, Deputy Governors are appointed on the board as RBI representatives. For other banks, Chief General Managers are appointed.

RBI NOMINEES ON BANK BOARDS

SBI Subir Gokarn, Deputy Governor, RBI

PNB Jasbir Singh, CGM RBI (Regional Director, Chandigarh)

BANK OF BARODA Sudarsan Sen, CGM, RBI (Regional Director, Ahmedabad)

UNION BANK OF INDIA Meena Hemchandra, CGM, RBI

*NABARD HR Khan, Deputy Governor, RBI

*NATIONAL HOUSING BANK HR Khan, Deputy Governor, RBI

* Govt is yet to issue a notification

Sources say the RBI is of the view while it will not appoint any of its serving officers on the boards of government-owned institutions, it may recommend retired officers or other professionals. The RBI usually does not send its representatives to the boards of private sector banks but can appoint observers if the need arises. The latest RBI move has been triggered by the issue of under-provisioning by the SBI. The matter came to light only when the bank announced its quarterly earnings in April. The SBI, which deferred its provisioning requirement for pensions, had requested the regulator to allow provisioning to be made from capital reserves, which is not considered a prudent practice. While the RBI entertained the SBI’s request as the provisioning burden was huge, at Rs 8,000 crore, it asked smaller banks to take a one-time hit. RBI sources say public sector bank chairmen and managing directors also insist that the RBI have a representative on their boards, mainly to counter the pressure from government nominees.

BS

JK Bank flags off RSETI Islamabad

Srinagar, Aug 2: In line with the RBI guidelines, the J&K Bank, state’s only listed company, today flagged off a Rural Self Employment Training Institute (RSETI) at Reshi Complex, Bijbehara in district Islamabad (Anantnag). Riyaz Ahmed Sofi, Project Officer DRDA inaugurated the RSETI in presence of an  impressive gathering comprising government employees, bank officials and local youth.  Among others present on the occasion were Muhammad Iqbal, Director RSETI Islamabad (Anantnag), Shadi Lal Dhar, Lead District Manager and branch heads of the business units Bijbehara, Zirpora and Zablipora. The inauguration also marked the start of a week-long training programme on Rural Artisanship for 30 local youth. Meanwhile, a week long training programme on Dairy Development conducted by RSETI Kulgam concluded on Monday. The programme sponsored by DRDA and organized by RSETI Kulgam saw participation of 25 youth. The valedictory function, among others was attended by R.K.Meena, Assistant General Manager, RBI, A U Tak, Project Officer, DRDA Kulgam and M Shafi Aiyaz, Director RSETI Kulgam. Meena on the occasion said: “The idea behind the programme is to provide various trainings to unemployed youth so as to help them in establishing their own income generating units.”

http://www.greaterkashmir.comcom/

Bank employees to strike work on Friday against privatisation

United Forum of Bank Unions announces strike as conciliation talks fail. Protest will involve employees of all public and private banks

About 10 lakh employees of public sector, private sector, foreign, co-operative and rural banks will go on strike on 5th August to protest against a range of issues from privatisation of nationalised banks, disinvestment in public sector banks and mergers and acquisitions in the banking sector, to the outsourcing of routine activities. The strike has been called by the United Forum of Bank Unions (UFBU), an umbrella organisation of nine bank unions, after conciliation talks at the office of the chief labour commissioner failed today. There will be another round of talks on Wednesday. ATMs could also be affected, bringing all banking activities across the country to a complete halt. “We are opposing banking sector reforms. This is not for bank employees alone, but for the sake of the country,” Ravindra Shetty, convener, UFBU, said at a news conference in Mumbai today.  The issues are listed in a 21-point charter that was drafted at an all-India convention in the national capital in May. The issues of all sections of bank employees and officers, even retired employees, are contained in the charter. The strike action appears to have been prompted by the plan of the government to table bills in the current session of parliament to amend the Banking Regulations Act and Banking Companies (Acquisition and Transfer of Undertakings) Act.  “Through these amendments, banks will be exempted from competition and any merger of banks will become easier for the government,” Mr Shetty said. The charter of issues has been put before the Indian Banks Association (IBA).  Mr Shetty criticised the government’s move to allow private investors (corporates) to invest more than 5% in private sector banks, saying, “There is a move to remove the 10% cap of voting rights in private sector banks. They are giving the Reserve Bank of India (RBI) sweeping powers to supersede the codes of banks and appoint administrators to run the banking industry.”  He said UFBU is opposed to such reforms and would struggle to protect and strengthen public sector banks. The union are demanding the expansion of public sector banks into villages, in line with the announcement the finance minister made in the Union Budget.  Mr Shetty referred to the fact that Indian banks had withstood the global financial  crisis of 2008. He said that even the government had acknowledged that Indian banks were able to tide over the crisis because of “our public character”, and today the same government was looking to change the character of the banking industry. The unions have also opposed the outsourcing and contractualisation of permanent bank jobs. While they had agreed to certain specialised IT-related being outsourced, they say that the government was trying to bring in various non-core jobs into the ambit of outsourcing. “The government wants to bring in business correspondents and facilitators that will take away the jobs of citizens who are seeking employment in banks,” Mr Shetty said.  He also referred to the attempt by the government to implement some clauses of the Khandelwal Committee report through the backdoor. Urging the government to revive the banking services recruitment board, as nearly five lakh employees will retire in the next five years, Milind Nadkarni, president of the National Confederation of Bank Employees, said, “Banks are going for clerical recruitment to campuses. We object to this as every boy and girl with the minimum required qualification should be allowed to apply for recruitment.”  Lalita Joshi, joint secetary of the All India Bank Employees Association, said that the families of many employees who have passed away were struggling in these days of high inflation and many of them were in a poor condition, but no effort had been made to employ any of the family members on compassionate grounds.  Mr Shetty hoped that the government would lend a more sympathetic ear to these issues and not push the unions into an indefinite strike.

Moneylife

No harm in govt managing its own debt: Rangarajan

No conflict of interest in RBI's twin roles

Chennai, Aug. 2:  Dr C Rangarajan, Chairman, Prime Minister's Economic Advisory Council, said on Tuesday that he saw “no harm” in government taking over the management of public debt, but at the appropriate time. “It is the responsibility of the government and the government might as well do it,” Dr Rangarajan said, but hastened to add that if the public debt management function is taken away from the Reserve Bank of India “prematurely”, it would not be wise. Dr Rangarajan was responding to a question after his lecture on ‘Economic Growth and Inflation', organised by the Indian Overseas Bank, as to whether the RBI's role as the debt manager of the government of India interfered in the transmission of its monetary policies into the desired effect.  (There is a view that the RBI's role as government of India's debt manager — it issues bonds and manages them on behalf of the government — gets in the way of its efforts to tackle inflation. This is because, according to the proponents of the view, it is in the RBI's interest to keep interest rates under check so that government does not end up paying a high interest, but on the other hand, its monetary policy measures of raising repo rates has to translate into higher interest rates in the economy, to check inflation. Some experts see a conflict of interest here.) In his response to this question, Dr Rangarajan noted that the question had been debated in many countries. While in many countries governments raise their own debt and manage it, in certain other countries (such as India) the management of public debt has been with the central bank. “To me, it is a matter of convenience,” he said, stressing that at least two major steps had been taken to ensure that there was no conflict of interest between the RBI's twin roles as the monetary authority and manager of government's debt. First, in 1996, the ad hoc treasury bills were abolished. Prior to that, government would simply raise the bills in favour of the RBI, which would print currency notes and pay the government. That is now gone. Second, under the Fiscal Responsibility and Budget Management Act, “the RBI is not allowed to be in the primary market” — i.e., it cannot buy government's bonds. With these two measures, the RBI is insulated from being influenced by its role as government's debt manager, Dr Rangarajan said. Later, on the sidelines of the function, when asked if RBI's raising of interest rates had actually helped tame inflation, Dr Rangarajan said, “yes, it has. You see, inflation will come down.” In his speech he said that inflation might be expected to come down to 6.5 per cent by March 2012.

HBL

RBI official begins inspection of vaults

The representative of the Reserve Bank of India, on the five-member committee set up by the Supreme Court to decide on the security, inventory and preservation of the articles inside the vaults of the Sree Padmanabhaswamy temple here, began work on Tuesday. A safety audit was conducted.  Assets, worth hundreds of crores of rupees, were recently discovered in the vaults. The audit is not from a security angle — that job has been taken over by the Kerala police — but one from the perspective of preservation.  At the end of this study, the committee is expected to find out whether these vaults need to be refurbished so that the articles inside are not damaged. The decision to go ahead with such an inspection was taken at a joint meeting of the five-member committee headed by C.V. Ananda Bose, director general of the National Museum, New Delhi, and the three-member committee headed by the former judge of the Kerala High Court, M.N. Krishnan, held here on Monday. It was on July 21 that a Supreme Court Bench comprising Justices R.V. Raveendran and A.K. Patnaik appointed two committees, one with five members and the other with three.

HBL

RBI to test inflation indexed bonds in market

The Reserve Bank of India (RBI) is all eager to test inflation indexed bonds in the market. CNBC-TV18’s Gopika Gopakumar finds out whether this product will be feasible. D Subbarao, Governor, RBI says, “Banks told us that there is not much of an appetite for floating rate deposits and by extension there may not be much of an appetite for inflation indexed bond. But our view is that we have to test this once again. There may be a tipping that did not work in the past.” Governor Subbarao's keenness to launch inflation indexed bonds is quite obvious. With inflation touching nearly double digits, he expects good demand for these bonds. Unlike government securities or fixed deposits, inflation index bonds give real returns as its coupon and principal payments are linked to the current wholesale price index. Experts say this move will benefit retail investors. Anjan Barua, Deputy MD, SBI says, “Historically in India inflation has been an issue. If you look at deposit rate structure for the last 15-20 years and also credit interest rate structure. Over the years even the present times, depositors are compensating the corporate as far as interest rates are concerned. So they are subject to inflation. Real rate of return over a period of time has been negative.” However, experts say inflation indexed bonds will not make much difference to institutional investors. Liabilities of banks and insurance companies are not linked to inflation and therefore don't feel the need to hedge these liabilities. But experts say this could inspire investors to launch innovative inflation linked products.  B Prasanna , MD, I-Sec Primary Dealership adds, “You have an asset which gives you a return based on inflation, this will encourage commercial banks to encourage them to borrow in the retail liability space using inflation or floating rate liability or insurance companies to look at inflation linked annuity plan. When these are launched if they are able to garner money, come and hedge these liabilities in the inflation index bond. From that perspective it helps commercial banks and institutions to look at different kind of liabilities.” The proposal to launch inflation indexed bonds comes at a time when RBI and government have been criticised for their poor inflation management. Experts say inflation indexed bonds form a big market in developing countries which face the crisis of rising inflation. Out of the USD 1.4 trillion outstanding in the government debt, USD 400 million account for inflation indexed bonds. But experts say it will be a while before it becomes a success in India.

Moneycontrol

MSME credit task force asks RBI to put pressure on lenders

Expressing concern over state-run banks, including SBI , not fulfilling their MSME credit disbursement targets, a task force under the Prime Minister's Office has asked the RBI to mount pressure on lenders to provide sufficient funds for growth of the sector. At a meeting presided over by T K A Nair, the Principal Secretary to the Prime Minister, it was decided that the "pressure must continue" on SBI and its associates like State Bank of Bikaner and Jaipur and other PSU banks to fulfill their targets, a highly placed source told PTI. As per the targets given to the public sector banks, they have to achieve 20% growth in credit disbursement to micro, small and medium enterprises (MSMEs), of which half must go to the micro units. The country's largest lender, SBI, did not achieve its target for ramping up disbursements to micro enterprises out of the total amount allocated to the MSME sector, according to the source. "Against a target for 50% growth in credit disbursement, the bank only registered 32% in terms of credit disbursement to the micro enterprises, out of the total amount to the given to the MSME sector," he said. "We will continue to put pressure.... The RBI has been asked to go into it," the source said. MSME Secretary Uday Kumar Verma, Planning Commission Member Arun Maira and senior officials of the departments of expenditure and financial services attended the meeting. A senior representative of the Reserve Bank of India was also present at the meeting of the PM-appointed task force, which was convened to review the status of implementation of its recommendations. Besides SBI and its associates -- State Bank of Patiala and State Bank of Travancore -- banks like IDBI and Union Bank of India, Vijaya Bank, Allahabad Bank and the Central Bank of India fell short of their MSME credit disbursement targets. The task force, which was appointed during the 2009 global financial crisis, had given several recommendations for ensuring credit availability to this vital sector. The MSME sector provides employment to 60 million people through 26 million enterprises. It contributes 40% to India's exports and 45% to total manufacturing output.

Moneycontrol

India’s Microfinance Bill: A major step forward for financial inclusion?

If the RBI takes direct responsibility for supervising NBFCs (which are the largest MFIs) and delegates the supervision of NGOs to NABARD, this provision is reasonable and positive but greater clarity on the matter would be enlightening and more specific drafting, useful. M-CRIL welcomes the draft bill as a means of transforming the microfinance sector into a beacon of hope for the financial and economic inclusion of millions of low income families across the country.

Read......

Three things to worry about

I understand that since the RBI has to pick up the slack left behind by a loose fiscal policy, it has taken on its new aggressive avatar. It also claims that it needs to compensate for the lack of policy initiatives on the supply side. Thus, the RBI’s tack is to restrain demand so that it does not run ahead of current capacity. This could do the trick in the short term and bring inflation down. But isn’t it risky to raise interest rates continuously?....

Read........ 

RBI wants companies to report MTM loss in derivative deals to banks

MUMBAI: Companies cutting derivative deals with banks will have to spell out their mark-to-market loss at regular intervals and submit a detailed board resolution to the bank selling the product. According to a Reserve Bank of India circular issued on Monday evening, banks offering derivative products to companies will now have to obtain resolutions from the boards of corporates.  In a step that is aimed at minimising risk for banks and disputes between banks and companies, the resolution to be submitted by a company's board should be signed by a person other than persons authorised to undertake the transactions.  Besides, the resolution should "be specific and should articulate specific products that can be transacted, mention the person(s) authorised to sign similar agreements, explicitly mention the limits assigned to a particular person and specify the names of the people to whom transactions should be reported by the bank."  In the past few years, several companies have entered into cross-currency and other derivative deals to improve export earnings through favourable foreign exchange rates, and also swap high-cost rupee loans into dollar and yen loans with significantly lower interest charge.  In 2007-08, as the currency bets taken by companies backfired, buyers of derivative and structured products moved courts, claiming that banks indulged in mis-selling as the contracts were complex and illegal.  Banks, on the other hand, argued that while companies never complained when exchange and interest rates moved in their favour, they took legal refuge to wriggle out of financial commitments.  Amid several disputes and a constant media glare, RBI last year brought in severe restrictions that virtually took the fizz out of the derivatives market. The fresh set of instructions issued on Monday will bring in certain safeguards in the deals.  "This is a good thing. It brings about proper risk management and will stop a lot of speculative positions being taken without people thinking it through," says Kumar Dasgupta, partner at PricewaterhouseCoopers. "Companies need to think about the benefits and risks involved in a complex derivative," he added.  In its circular, RBI further said "no bank can be a market-maker in a product it cannot price independently, which is applicable also to back-to-back deals." Foreign banks in India can be market makers for specific products only if they can price the products locally; and the regulator can ask for evidence of such pricing to be demonstrated at any time.

ET

Farmers denied loan waiver, move Gujarat high court

A division bench of the Gujarat high court on Monday issued notices to the State Bank of India (SBI), Reserve Bank of India (RBI) and the Union government in the matter of giving some farmers the benefit of agricultural loan waiver. A group of farmers from Idar taluka of Sabarkantha district had approached the high court because the local SBI branch had issued them notices for payment of their loan with interest. In their petition, the farmers had alleged that the bank was charging them high interest despite the fact that they were eligible for loan waiver under a scheme for farmers introduced by the Centre in 2008. The petitioner farmers had taken agricultural loan from2004 to 2007.

DNA

Parliamentary committee expreses concern on claims rejected by insurers

NEW DELHI :A Parliamentary standing committee on finance has expressed concern over the increase in the number of claims rejected by the insurers. The Parliamentary committee in its 33rd report has also pulled up the insurance regulator for not maintaining any data base on the same, vital for protection of policyholder's interest. As per the information furnished by insurance firms, around 19,284 claims were rejected by life insurers, the most by country's largest life insurer Life Insurance Corporation. In the general insurance sector over 4 lakh claims were rejected, with ICICI Lombard General Insurance alone rejecting around 2 lakh claims.  The committee headed by former finance minister Yashwant Sinha has asked the regulator to carry out an analysis of such policies and establish the reason to take remedial measures to reduce such instances. The committee has also asked the government and the banking sector regulator, Reserve Bank of India to critically review the performance of business correspondent model and develop them as a viable source of expanding banking network in remote and inaccessible area. The committee observed that banks should not look at business correspondents as 'cost centres' but treat them as 'service centres'. The committee has also directed the government to conduct a thorough review of the functioning of the debt recovery tribunals and report to it within 30 days. The committee noted that debt recovery tribunals have not been very effective in speedy disposal of cases and need a complete overhaul.  Expressing concern over low lending towards the agriculture sector, the committee pointed out that banks have shown greater propensity to disburse indirect agriculture credit and requested RBI to ensure that private sector banks also fulfil their social mandate.  The committee observed that the government's disinvestment policy is not rational and is principally governed by motive of revenue generation. It further asked the government to develop a clear disinvestment policy which also include sick central public sector enterprises.  

ET

IT department very lenient to BCCI: Parliamentary panel

Accusing the Income Tax Department of being "very lenient" to the Board of Control for Cricket in India (BCCI), a Parliamentary panel on Tuesday said it allowed the cricketing body to "enrich its coffers at the expense of the exchequer". Headed by former Finance Minister and senior BJP leader Yashwant Sinha, the Standing Committee on Finance has asked the IT department, Reserve Bank of India and Corporate Affairs Ministry to expedite their investigations into the affairs of the BCCI and the Indian Premier League (IPL). The report of the Committee, which was tabled in Parliament, also regretted that the much-loved cricket -- a gentleman's game -- is getting "sullied and embroiled in transgressions of law off the field".

NDTV

Banking sector: Limited upside

RBI’s recent stress tests show while banks seem reasonably resilient, profitability may be affected. Rising interest rates, sticky inflation and flagging competitiveness of the corporate sector are taking a toll on Indian banks. Since May this year, banking stocks have traded sideways for a variety of reasons. The first quarter results indicate that policy tightening has adversely affected credit growth, with banks curbing their exposure to several sectors. Even as many believe that inflation and interest rates are close to their peaks, analysts believe earnings could well remain under pressure on lower margins and rising non-performing loans. The Reserve Bank of India’s Financial Stability Report, released in June, says: “A series of stress testing in respect of credit, liquidity and interest rate risks showed that banks remained reasonably resilient though their profitability could be affected significantly. Under severe stress scenarios, banks may face liquidity constraints. Banks need to remain vigilant to the headwinds from the prevailing inflation and interest rate situation which may affect their asset quality as changes in interest rate were found to have the most significant (negative) impact on slippage ratio of the banks.” In order to avoid risks, banks are shrinking loan books, which is indicative of lower loan growth rate of 18 per cent to 20 per cent, compared to last year’s 21 per cent. Most banks will also find it difficult to maintain net interest margin levels of December 2010, which are slated to decline by 50-100 basis points. Combined with these operational issues, the investment portfolio of most banks are also not yielding gains and lack of treasury gains will lead to muted profit growth in 2011-12. According to an analysis done by Goldman Sachs, the financial sector displays a high correlation with inflation, interest rates, GDP and IIP. Past trends show that banking stocks tend to peak/bottom four-six months ahead of inflation levels peaking/ bottoming. While investor holdings in the banking sector remain high, current valuations are not at their peak compared to the previous cycle, and hence the Street is not expecting a sharp adjustment. However, since earnings and credit growth will remain under pressure, Goldman Sachs expects stocks to trade in a narrow range. While the sector is not overvalued, select sector defensives, some private bank stocks are trading at expensive valuations, claim analysts. Despite expensive valuations the market has a bias towards such stocks as they are better equipped to handle spreads compared to their PSU counterparts.

BS 

RBI mulls tighter FDI norms, seeks ED help

New Delhi: The government and the Reserve Bank of India (RBI) want to strengthen the FDI policy framework so that the enforcement agencies are able to scrutinise the sources of foreign funds more effectively. The move comes in the backdrop of the RBI’s ongoing probe into the allegation that “dubious funds” have been routed through US-based marquee hedge fund DE Shaw ‘s Mauritius subsidiary to various Indian entities, including Amar Ujala Group. DE Shaw has affirmative voting rights in Amar Ujala which are tantamount to breach of sectoral cap of 26% in media sector, it is felt. According to sources, the RBI feels that the extant FDI policy is not fully equipped to capture any additional details on source of funding by non-residents apart from regular reporting norms like identification and overseas account particulars, which is used for balance of payments (BoP) statistics. The central bank and the finance ministry have directed the Enforcement Directorate to suggest ways to frame a policy that allows a closer vigil on the funding sources as well as the end use of funds. In its reply to the government, DE Shaw has dragged big media companies like Jagran Prakashan, DB Corp (Dainik Bhaskar) and HT Media into the muck saying these Indian companies had also given such rights to foreign funds before coming out with respective IPOs. It argued that there is nothing unusual or special about these rights. These rights are commonly provided to private equity and financial investors, the hedge fund has said in a written communique to the government. Now, the RBI has directed ED to run an investigation into the proposed funding by DE Shaw into Indian company and also help framing new FDI rules incorporating various ways of scrutiny on source of foreign funds. “The issue may require a thorough investigation by the ED,” the RBI has observed. “The suspicious transactions are reported by the banks to the RBI and finance ministry. Only thing that can be done is to enforce better know your customers norms and anti-money laundering rules. There are provisions in the law for KYC and AML norms of the foreign investors,” Ernst and Young partner Hiresh Wadhwani said.  Amar Ujala in its plea claimed that the agreement was entered into fraudulently between the erstwhile management of Amar Ujala Publications and DE Shaw on the basis of false representations made by the global fund house. The deal was approved by FIPB way back in 2007, but Amar Ujala earlier this year complained that the deal was illegal and in violation of foreign investment rules. Amar Ujala also claimed that DE Shaw misled the FIPB by not informing them about certain conditions of the deal. Subsequently, FIPB had sought clarifications from DE Shaw on whether the deal was in conformity with all the terms and conditions specified in its approval. Both Amar Ujala and DE Shaw have filed petitions against each other in the High Court. The case is coming up for hearing on Wednesday.

FE

Policy paralysis bites

In its latest monetary policy statement, the Reserve Bank of India has already pointed out that its battle against inflation would be a limited success unless the government acted to increase the productive potential of the economy.....

Read...........

RBI hints at using ‘Aadhaar’ for authentication in banking




G Padmanabhan, Executive Director, RBI

 The Reserve Bank of India is considering the use of biometric data captured for Unique Identification issued under the government’s ambitious ‘Aadhaar’ scheme. According to G Padmanabhan, Executive Director at RBI, a working group looking into enhancing security of present card transactions has noted that Aadhaar biometric data would serve as a secure second factor of authentication even for magnetic stripe cards obviating the need mandating a switch over to chip and pin card regime, which has cost implications for the industry. He spoke at length on frauds and authentication issues at an event in Mumbai last Friday. He highlighted the type of frauds and ways to deal with them. “While the challenges to security are stiff and increasing by the day, being alive to threats is more important,” Padmanabhan said in his speech. RBI has introduced certain measures like one-time password (OTP) and confidential data confirmation. This measure has ensured greater security in online card transactions and instances of online frauds has considerably dropped, he added. More importantly, this has resulted in a significant growth in card transactions in this mode, reflecting the enhanced level of customer confidence.

Here is some key feedback RBI has received on the secondary authentication process from customers:

* One time password or two factor authentication is one of the methods in securing transactions. However, the essential requirement of such OTP being sent to the registered mobile of the customer leads to several issues or inconvenience due to factors like network availability, restriction to a particular phone number, non-availability of the service when customer travels abroad, timing out of online transactions due to slow speed of OTP transmission etc. It also has cost implications for the customer as he has to pay for charges at international data transmission tariffs..

* Multi-layer security by way of log-in password, transaction password and some confidential data confirmation make online transactions more secure, and in a better manner. But, there are issues like memorising of multiple passwords, slogans, pictures and answers to questions. Some transaction of urgent nature getting stuck due to these problems and even online access getting blocked some times. This, coupled with the time taken for access re-activation, password generation,which is sometimes a time taking process, causes irritation and inconvenience to the customer.

* In mobile banking, the challenge is to decide the transaction value limits up to which unencrypted data can be transmitted for payments or funds transfer. If the limits are set too tight, there can be cost and efficiency implications while making it too lax may invite the risk of information getting compromised.

* Surveillance cameras help in making ATM transactions more secure, but there are issues about privacy and more so, customer discomfort with the same.

All the above factors make it necessary for RBI to look at other credible options. Unique Identification number with its biometric database could ensure that the person with the right identity is accessing personal financial data. In April 2011, UIDAI (Unique Identification Development Authority) discussed possibilities of the number usage in the banking sector with a section of banks. They were looking to allow customers to operate ATMs armed with only their 12-digit Aadhaar number where the access will be facilitated by a biometric scan, said a report in the Mint newspaper.

Firstpost

Follow norms on issuing DDs: RBI to banks

The Reserve Bank of India (RBI) today said some banks had breched guidelines by issuing demand drafts of Rs 50,000 and above on deposit of cash and asked the lenders to stick to the rules. According to the existing guidelines, demand drafts and other such intruments such as mail transfers, telegraphic transfers and travellers cheques for Rs 50,000 and above should be issued by banks only by debit to the customer's account or against cheques and not against cash payment. "It has been brought to our notice that some banks have recently issued demand drafts of Rs 50,000 and above on deposit of cash and not against debit to the customer's account or against cheques or other instruments tendered by the customer," the RBI said in a notification. It asked the banks to comply with thr rules which were laid down back in 1991. "Any violation of these instructions will be viewed seriously," the RBI said, without disclosing the identity of the concerned banks. The apex bank termed the breach of the guidelines as a matter of serious regulatory concern and said such practices could have wide ranging ramifications.

BS

Saraswat Bank readies for conversion into commercial bank

At a time when scheduled urban banks are facing constraints in meeting strict norms for capital adequacy and limitations in raising funds, Saraswat Cooperative Bank has initiated steps to become a commercial bank. “A slew of initiatives have already changed the bank’s status quoist culture to a modern-day banking solution provider. The bank has already embarked upon an ambitious target of achieving a business level of Rs 1 lakh crore by 2021. Against this backdrop, converting it into a commercial bank is being seriously looked into. However, the issue is at a preliminary level,” Chairman Eknath Thakur told Business Standard. The city-headquartered lender, which has a total business of Rs 27,313 crore, is working out a detailed plan in this regard. This is not the first time that a cooperative bank would be converted into a scheduled commercial lender. In May 1995, Development Credit Bank (DCB) was converted into a Scheduled Commercial Bank in the wake of the country’s economic liberalisation, according to the DCB website. The Reserve Bank of India’s assessment of the bank’s financial health, operations and systems will be among the key factors in considering its proposal for conversion. Saraswat Bank is yet to submit a proposal to the banking regulator. “As an urban cooperative bank (UCB), we face two challenges in building our capital base to support credit growth. First, present legal norms allow UCBs to only issue shares at face value (say at Rs 10 per share) even though its the book value, which reflects financial strength of bank may be strong. In other other words, the bank is not able to issue shares at premium despite better standing. Another aspect is despite being a cooperative body, bank pays tax on the profits, limiting ability to recoup resources for capital,” Thakur added. “The Reserve Bank of India treats us on par with commercial banks when it comes to meeting regulatory norms. However, urban cooperative banks are not allowed to do some business which commercial banks are permitted to operate in,” he said. The UCBs also face the challenge of grooming human resources. Thakur said that over a period, ticket size of assets (loans) and liabilities (deposits) have grown, especially for industry and business accounts. Bank staff and directors should be capable to handle larger proposals. That needs grooming in project appraisal, day-to-day monitoring and documentation. As on March 31, the bank’s deposits grew to Rs 15,800.96 crore from Rs 14,266.73 crore a year ago, while its profit surged to Rs 212.27 crore from Rs 119.67 crore. Ashok Pandit, former chairman of the bank, said, “Over the years, the Saraswat Cooperative Bank has not only increased its presence across the country but outnumbered some of the public sector banks on some of the parameters. There is no need to over fear. This bank has the potential to become a commercial bank, as we have seen similar cases including that of Development Credit Bank.”

BS

Kerala temple panel meets for evaluation

The five-member expert committee constituted by the Supreme Court to scientifically evaluate the treasures found in vaults of Sree Padmanabhaswamy temple today met to evolve strategies for the preservation of articles. The panel headed by senior bureaucrat and Director General of National Museum CV Ananda Bose held a meeting to evolve a work plan to go about the job as mandated by the apex court, official sources said. The committee, however, did not begin videographing and photographing of treasures, as directed by the court. Other members of the panel are RBI nominee Vikas Sarma, archaeologist Dr MV Nair, Archaeological Survey Of India's nominee BV Raju and temple executive officer VK Harikumar. The meeting reviewed the work already done by seven-member committee which had opened four of the six inner chambers and inventoried the articles. The inventory panel, which included two former judges of the Kerala High Court, had opened four vaults, which were found to contain a glittering pile of priceless treasures like gold jewels, stone-studded crowns, rare idols, rubies, diamonds, piles of gold coins and stacks of gold and silver ware, reportedly worth over Rs 1.5 lakh crore. A Division Bench of the Supreme Court comprising Justices RV Raveendran and AK Patnaik, had on July 21 ordered the formation of the panel to supervise the unearthing and preservation of the assets.

BS

RBI Governor Calls for Better Global Coordination

VISAKHAPATNAM: The Reserve Bank Governor Duvvuri Subbarao today called for better coordination among the nations to correct the still-lingering global economic imbalances that cropped up after the 2007-08 financial crisis and which continue to haunt the developed world. "Microprudential supervision is necessary and needs to be supplemented by macroprudential oversight, so that the global imbalances can be corrected," the Governor said, delivering a lecture on `India and the global financial crisis: what have we learnt?' at the School of International Business, Gitam University, here. Talking about the lessons from the crisis, the Governor said, "Global imbalances need to be redressed for the sake of global stability... Global problems require global coordination." The RBI chief said India could quickly recover from the 2007-08 global financial crisis because of the prudential policies adopted by the government and RBI, though country witnessed a dip in GDP growth, which was "because of our deep financial and trade integration with the rest of the world." Stating that learning from history was important to prevent such crises, the Governor observed that too much borrowings and markets instability were also warnings for the economy.

The Outlook

RBI Governor D Subbarao says need to raise rates to curb inflation



Tackling crisis:

The RBI Governor, Dr D. Subbarao, delivering a talk on "India and the global financial crisis: what have we learnt?" at GITAM School of International Business at Visakhapatnam on Monday. GITAM President, Mr M.V.V.S. Murthy, and the Vice-Chancellor, Mr G. Subrahmanyam

VISAKHAPATNAM: India needs to raise interest rates to restrain inflation, said Duvvuri Subbarao, governor of the Reserve Bank of India, on Monday. Restraining inflation will ensure medium-term economic growth is sustainable, he said in a speech on India and the global financial crisis.  The 10-year benchmark bond yield rose 2 basis points to 8.45 per cent after the governor's comments.  Last week, the central bank had raised interest rates by 50 basis points in a bid to tame inflation amid signs of slowing economic growth. It was the 11th rate increase since March 2010.

ET

RBI offering bitter but unavoidable medicine

Central bankers never talk about what the worst-case scenario is,' admitted Mervyn King, governor of the Bank of England , in a rare moment of candour. It's a different matter that King was referring to the Lord's test between India and England, where the worst-case scenario was that bad weather had set in and 'we are not going to get a single ball bowled for the rest of the day' . But he could well have been speaking for the governor of the Reserve Bank of India (RBI), D Subbarao. The Bank's First Quarter Review of Monetary Policy 2011-12 released last Tuesday paints a rather gloomy picture of slowing growth and persistent and high inflation but stops short of describing what the worst-case scenario could be, a return to the stagflation of the 1970s. After all, none of the factors advanced as justification for the sharper-than-expected hike in policy rates is particularly new or convincing. Demand pressures have been strong and inflation has been way higher than the RBI's own projections for the past many months. Yet the RBI preferred to hold its horses and persevere with 'baby-steps' . As for growth, it chose to ignore signs of over-heating when, arguably, there was a case for monetary tightening and tighten just when there are signs that growth has begun to moderate, even if, as the Statement says, there is 'no evidence as yet of a sharp of broad-based slowdown.' So why did the RBI turn much more hawkish than earlier ? Why did it decide that it is not only 'necessary to persevere with its anti-inflationary stance' , but also go on to administer harsher medicine than in the past, disregarding market expectations and its own decidedly more dovish past?  The Bank claims it has been among the most aggressive across the world in tightening liquidity (a debatable claim going by the accompanying table), but conveniently ignores the fact that even more aggression was called for since inflation is among the highest in India. So what changed? There are two possible explanations . One, the inflation outlook is far worse than the Bank has cared to admit to date. A careful reading of the RBI's First Quarter Review of Monetary Policy 2011-12 released last Tuesday suggests this might be so. For perhaps the first time, the RBI has put inflation concerns foremost and in no uncertain terms, calling it the 'dominant macroeconomic concern'. Better still, unlike the previous year when it retained its unrealistically low estimate for year-end inflation only to dent its credibility when the final March 2011 number came in, it has raised its inflation projection for March 2012. The Bank now expects fiscal 2011-12 to end with inflation at 7%, up from 6% projected in May this year. Even this comes with a number of caveats: the performance of the southwest monsoon that does not look too hopeful at present, crude oil prices whose outlook is uncertain , policy decisions regarding administered prices. Hence, we could end up with inflation well above 7%.

ET

'Govt should restrict fiscal deficit at 4.6%' - C Rangarajan,Chairman, PMEAC

Though the finance ministry expects the economy to grow at 8.6 per cent this year, the Prime Minister’s Economic Advisory Council (PMEAC) has lowered the growth forecast to 8.2 per cent from nine per cent earlier. Chairman C Rangarajan told Vrishti Beniwal the revenue target might remain at the budgeted level and the focus should be on expenditure.

What factors led you to revise the growth target?

Subsequent events have led us to revise our target growth rate downwards to 8.2 per cent from 9 per cent in February. The global situation has deteriorated since then and the environment is not conducive for rapid growth. The industrial production has also showed a decline.

What are the risks to the GDP growth this year?

It is dependent upon a reasonable monsoon. We think it will be a good monsoon this year. The other is the international economic situation. If it deteriorates further, we may have a problem. Otherwise, we think the target will be met.

What are the immediate areas of concern for the government?

Bringing inflation down to a comfortable level and maintaining the fiscal deficit are the major short-term challenges. These should be addressed well so that the growth rate in industrial production and investment sentiments pick up.

Would it be possible for the government to meet its fiscal deficit target?

They should restrict the fiscal deficit at 4.6 per cent of gross domestic product. It is a difficult task, but appropriate policy decisions have to be taken.

When do you see inflation coming down?

By November, we should start seeing a decline in inflation. It also depends upon whether the trend has started or not. I mean the inflation may remain at a high level till November and then start declining.

What prescription would you offer to keep the current account deficit low?

We have projected a current account deficit of 2.7 per cent. I think that is a reasonable level of current account deficit, which can be financed by promoting foreign investment flows. Given our growth needs, a moderate trade deficit and current account deficit are inevitable.

Do you think the budgeted limit for expenditure might be breached due to a rise in subsidies?

They have certain expenditure pattern and we have to see whether that pattern can be maintained or not. There is some element of subsidy. (But) the rest of the expenditure should be maintained at the budgeted level. Also, some expenditure will come in future or the last quarter of the year. It may not necessarily be meant for the full financial year such as food security.

Should the government look at augmenting its revenues from different sources to compensate for any increase in expenditure?

I think they will meet the revenue target. Some expenditure may shoot up and to that extent, revenue augmentation will become important. We adjusted downwards excise duties in the wake of the slowdown. But a decision will be taken only when the fiscal deficit cannot be maintained at the budgeted level. In the medium term, introduction of the Goods & Services Tax and the Direct Taxes Code will help. GST can add to revenue growth if rates are properly chosen

What should be the government stand on diesel decontrol and increase in petroleum prices?

We should go for diesel decontrol as a matter of policy, but whether it should be raised or not would depend on international prices. So long as crude prices do not show a rise, further adjustment in petroleum prices may not be necessary.

Have interest rates peaked or the Reserve Bank of India (RBI) may continue with a tight monetary policy?

RBI action will depend upon behaviour of inflation. We believe until such time when inflation shows definite signs of decline, the present tightening policy should continue.

BS 

Economic Advisory Council scales down growth to 8.2 %

Dr. Rangarajan said: “To keep the economy growing at 9 per cent, it is important to increase the fixed investment rate.''

Read.........

Stimulus, RBI policies helped faster recovery: Subbarao

Reserve Bank of India (RBI) Governor D Subbarao on Monday said fiscal stimulus packages by the government and the central bank’s monetary policies helped the country recover faster from the global financial crisis. The financial crisis of 2008 was different from other past economic crises, he said while addressing the students of Gitam School of International Business here. During the past crises, only one or two countries were affected but in 2008, the whole world was affected and India was no exception, he added. “During the crisis, India’s GDP growth slowed, rupee depreciated by 30 per cent in 15 months, exports slipped 25 per cent, FIIs had taken money out of Indian markets, corporate houses faced liquidity crunch and the entire financial markets had come under pressure. These were the ill-effects of the crisis,” he said. “The current crisis is not the end. In future also, we can see such crises but we should reduce their impact by proper policies,” he told the students.

BS

The Indian economy: A trillion dollar baby twice over

What actually happens in the next five years has tremendous implications for everybody ranging from the richest to the poorest

India will almost have a $2 trillion economy by the end of March 2012, falling a mere $6 million short of the mark, according to a new report by the Prime Minister’s Economic Advisory Council (PMEAC) released on Monday. Data released by the PMEAC shows that India doubled both the size of its economy and its per capita income in five short years. The average income of an India is estimated to be $1664 a year. Though economies do not move in a straight line, a simple extrapolation suggests that we could have a $4 trillion economy and an average annual income of $3328 by FY17 in case the next five years are similar to the past five years, admittedly a brave assumption. As a point of comparison, it is sobering to note that China had that level of per capita income around two years ago, which already puts us ten years behind it. The real question then is whether India will indeed move along the same trajectory as it has done in the past five years. Or will its path out of poverty be even steeper? Or will growth flatten out? What actually happens in the next five years has tremendous implications for everybody ranging from the richest to the poorest. The former may continue to prosper, but higher economic growth will give the latter avenues to move out of poverty as well as provide the government tax revenues to help those in danger of being left behind. This is why the thrust of policy should be to encourage fast economic growth, to ensure that India keeps on the current flight path and does not crash land as many Latin American countries did in the 1970s. The signs do not seem good right now, with slowing growth and higher inflation clouding the prospects of the Indian economy in the next few quarters. Some of the current pain could be cyclical. The bigger danger is that the slowdown in growth and rise in prices could become structural, in which case the problem cannot be tackled by the Reserve Bank of India but needs urgent attention from a distracted government, especially getting economic reforms off the ground once again. Manmohan Singh​ could go down in history as the man who helped energize the Indian economy after 1991 and the man who was at the helm when it lost speed after 2011.  

Mint

End of rate hike cycle likely in September: Experts

All talks of the Reserve Bank of India ending the rate hike cycle came to a standstill on July 26, when the bank hiked key policy rates by 50 basis points as against the consensus expectation of 25 basis points. Going forward, analysts expect the regulator to extend its current rate hike series by another 25 bps as inflation continues to scale up at least till August. However, the regulator is widely expected to take a pause afterwards with the country's growth momentum increasingly showing signs of moderation. "Inflation will likely peak in August to about 10%," a research report of Kaushik Das, an economist from Deutsche Bank, stated. "It would then moderate gradually to 8% by December and further to 7% by end of March 2012, provided monsoon turns out to be normal and global commodity prices remain stable at current levels. Given the RBI's tone, we believe that unless external risks (primarily stemming from US and Euro area debt crises) manifest in a disorderly manner, the RBI will find itself compelled to raise rates again in September by 25bps," he explained. The RBI raised the repo rate (8%) and reverse repo (7%) rate by 50bps in its first quarter monetary policy on July 26. Repo is the rate at which banks borrowing money from the RBI while they park their excess liquidity through reverse repo window. Since April, 2010, the regulator hiked its key rates by 325 bps in a bid to contain high price rises. "Despite its hawkish stance, the RBI is nearing an end to its hiking of rates," said Sonal Varma and Aman Mohunta from Nomura Research in a note. "We attach a 60% probability to another 25bps repo rate hike in September, followed by a pause. We believe the RBI’s aggressive rate action reflects both a need to front-load its rate hikes due to lags in policy transmission and a recognition that rate hikes could become politically more difficult as the growth slowdown broadens." Though the RBI governor expressed satisfaction over policy transmission, there were many banks, which did not fully pass on the higher cost of borrowings to their customers. In the aftermath of RBI’s recent hikes, however banks across the board are hiking their lending rates. "So, what will be the impact of repeated rates hike on the growth?" ask many who are apprehensive of slower pace of growth at the cost of taming inflation. "Economic growth set for a moderation in FY12 to 7.9%–we expect the effect of growth moderation to be amplified in the second half due to statistical base effect elevated level of inflation to provide downside risk to growth," said Shubhada M Rao and her team of economists at Yes Bank . They expect monetary tightening to continue by another 25 bps till September. In the first quarter credit policy, the RBI governor, however, did not sound overly cautious on growth moderation as he felt "growth moderation still in early stage".

Moneycontrol

FM raps banks on farm lending

Finance minister Pranab Mukherjee has pulled up chairmen of government-owned banks in a recent meeting for not meeting targets for agriculture lending. As per the Reserve Bank of India (RBI) guidelines on lending to the priority sector, banks are required to achieve a target of 18% of the total credit towards agriculture. Several large and mid-sized banks have failed to meet their targets. The finance ministry has also asked banks to show specific reasons for not being able to achieve the set targets. Bank chairmen have now been directed by the government to frame a mechanism to ensure that the set targets are met.  At present, the banking system covers about 50% of the farmers in the country. The rest are still primarily being catered for by money-lenders, with cash strapped micro financial institutions have significantly reduced lending to the farmers.  "The finance minister has raised concerns over the issue of agriculture lending and we will get back with suggestions on how to address the problem" a public sector bank chairman told HT. However, it was a one time scheme and banks were expected to shore farm loan portfolio and bring as many farmers as possible under the formal banking net. The growth in the number of farmers'account has been a mere 14% in the last one year. Mukherjee has also asked banks to devise a strategy to increase the number of farmers' bank accounts. The move would give a push to the much hyped financial inclusion programme of the UPA government

HT